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High hopes for Bank of England's new broom

Jeremy Warner

Mark Carney with the man he will take over from at the Bank of England, Sir Mervyn King, at a G20 meeting in Washington. Photo: JONATHAN ERNST

Something of a coup for Britain's beleaguered coalition government or more evidence that Goldman Sachs is taking over the world? Only time, it scarcely needs saying, can answer this question.

But from this juncture, the appointment of Mark Carney as the next Governor of the Bank of England looks an inspired and eloquent choice which marks a clean break with the failings of the past. The Chancellor has managed to transform an appointment which threatened to be a big, somewhat underwhelming, yawn into a major and very welcome surprise.

It was necessary both to double the going rate for the job and to reduce the term of office from eight to five years to persuade Mr Carney to give up the charms of Ottawa, whatever they may be, but in the end the Chancellor has got his man. In the summer Mr Carney said he wasn't interested, leaving the Chancellor with no option but to settle for second best. But private meetings behind the scenes at subsequent G7 and IMF summits eventually succeeded in persuading Mr Carney to accept the challenge, or should that be chalice?

On the matter of money, the pay is also nearly five times as much as the Prime Minister gets, which may be a reflection of the importance the Government attaches to the post, with its sweeping new powers to manage the economy, or may just be the new minimum for finance - take your pick.

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In any case, a Canadian, albeit one who intends to take British citizenship, is to become the next Governor of the Bank of England - the first time the Bank has had a foreign national as its head.

This may come as a shock to those who believe there are some jobs too British to be handled by a foreigner, and even more of one to people who worry about the apparently unstoppable rise of the Goldman Sachs diaspora - yes, before entering public service, Mr Carney was a Goldman Sachs apparatchik. But is it really so very odd when you consider the realities of today's global village? True enough, central banking is not Premier League soccer, where a foreign sounding name is a positive pre-qualification for management, and in any case you might have thought that a job so vital to the interests of the UK economy would at least demand someone unambiguously rooted in it.

Yet a very large part of the Bank's job will in future be to regulate and manage the City, and this long since ceased to be a peculiarly British affair. These days, a very substantial proportion of those who work in the City, if not the majority, were not born British nationals, and the City is itself a truly global financial centre, answerable to myriad national regulators.

Why not a Canadian?

If an Italian, Mario Draghi, can be thought an acceptable central banker to Germany and France, why not a Canadian to Britain? If nothing else, Mr Carney's appointment sends out a powerful signal - that this is an economy which sees its future very much from a global perspective, open to outsiders, open to trade, open to finance, and open for business. Mr Carney's close working relationship as Governor of the Bank of Canada with the centre right Canadian prime minister, Stephen Harper, is icing on the cake for a Tory leadership which is faintly in awe of its successful Canadian counterpart. Britain is presumably getting a similarly conservatively minded central banker. The same could not perhaps be said of some of the other candidates for the job.

Most of those shortlisted - Paul Tucker, the present deputy governor, and Lord Turner, chairman of the Financial Services Authority, included - would no doubt have made perfectly acceptable choices, but none of them ticked the boxes in quite the same way as Mr Carney.

There was always some wretched fly in the ointment. For Lord Turner it was his reputation as a Labour luvvie that counted most against him. On the basis that the person who gets top jobs like these is always the one with the least number of enemies, Turner was never likely to make the grade. Mr Tucker was in most respects the perfect insider for the job, which in another age would have been his for the taking, rather in the nature of rightful heir to the crown. If there is such a thing as a Bank of England princeling, Mr Tucker is it. There are few more steeped in the culture and ways of the Bank than he.

Ironically, this has counted against him at a time when great change is required from the Bank, both in terms of its responsibilities and accountability. If he could get one, Mr Osborne was determined to have a new broom, someone capable of breathing new life and ways into the Bank of England's fusty old corridors.

Mr Tucker was perhaps too much identified with past failings to be that person. I'm not referring here to Mr Tucker's unfortunate entanglement in the Libor scandal, or even the unduly familiar relationship, revealed by emails, that he appeared to have with the fallen Barclays boss Bob Diamond. These things certainly didn't help, but in times gone by, they might have been overlooked. There is no credible evidence that we know of to support the allegation that Mr Tucker authorised Libor manipulation, nor is it a sin to be close to the bankers that make and break markets, if that's supposed to be your job.

'Group think' culture

Yet it was Mr Tucker's misfortune that he was very much part of the complacent "group think" that engulfed the Bank of England in the lead-up to the crisis. He wasn't the chief culprit by any means, but he must nevertheless take his share of the blame for the Bank's failure to counter the excesses of the credit bubble and the Labour government's public spending binge. He was also very much a part of an ill-judged marginalisation of the Bank's financial stability functions, even if he did at times attempt to fight against it. Mr Tucker was as much blind to the dangers as everyone else.

Mr Carney, by contrast, had an extraordinary good crisis, which Canada weathered much better than any other major advanced economy. This may have had more to do with luck than design. Canada had its very own economic and banking crisis in the 1990s, and was therefore better prepared than most for this one. It also has an abundance of natural resource.

Nonetheless, he's generally thought of as at the very top of his game as a central banker, and by some, given Canada's evident immunity to the credit crunch, in a league all of his own. Osborne will be hoping that some of the Canadian approach to banking regulation and balanced economic growth can be brought to this country. As chairman of the Financial Stability Board, Carney also brings an international profile and knowledge to the job that no UK applicant could match.

Some will find this choice a disappointment. Just to repeat the point, why do we need to go outside our own gene pool to find someone who meets the bill? The answer to that question perhaps lies as much in the failings of the UK economy over the past 15 years as the Chancellor's desire to bag an international big hitter.